Penn West names new CEO, sets dividend cut and layoffs

Euan Rocha, Scott Haggett

4 Min Read

TORONTO/CALGARY (Reuters) - Canada’s Penn West Petroleum Ltd PWT.TO named a former Marathon Oil Corp (MRO.N) executive as CEO and said it would slash its dividend, cut 10 percent of its staff and review strategic options such as asset sales and joint ventures.

The Calgary-based oil and gas producer said late on Tuesday that it had appointed former Marathon Chief Operating Officer David Roberts as president and chief executive officer, effective June 19. He replaces Murray Nunns, who will retire from the company on July 1.

Penn West is one of Canada’s largest conventional oil producers with nearly 6 million acres (2.5 million hectares) of exploration lands in Western Canada and 676 million barrels of reserves. However, its shares have dropped by more than half over the past two years as production declined while its rich dividend drained the cash needed to boost output.

“The company has been struggling and it needed to take decisive action,” said Jim Hall, chief investment officer at Mawer Investment Management Ltd, which owns some 1.32 million Penn West shares, according to the latest Thomson Reuters data.

“I‘m happy they are doing so.”

Penn West said it plans to increase efficiency, starting with a 10 percent workforce reduction over the next few weeks. The company had about 2,130 employees at the end of 2012.

For the third quarter, the company is cutting its quarterly payout to 14 Canadian cents a share from 27 Canadian cents to increase its financial flexibility, it said. Shares of Penn West were down 30 Canadian cents at C$10.60 by early afternoon in Toronto.

“They need the cash to operate the business and invest in the business so it makes sense to retain it rather than pay it out when they couldn’t afford to do so,” Hall said.

The company will maintain the second-quarter dividend at 27 Canadian cents a share and pay it to shareholders of record on June 28. It also said its outlook on full-year production and capital spending remained unchanged.

STRATEGIC REVIEW

Penn West also said its board will form a special committee to explore such options as strategic financing alternatives, asset divestments, joint ventures and other business combinations.

The changes come barely a month after the company named two respected industry leaders to its board - former Suncor Energy Inc (SU.TO) head Rick George as chairman and former head of Canadian Natural Resources (CNQ.TO) Allan Markin as vice chairman.

“We believe the announced CEO change signals a step forward in the ongoing reorganization and restructuring of Penn West,” BMO Capital Markets analyst Gordon Tait said in a research note. “We are encouraged that the company appears to be making the difficult organizational and financial changes needed.”

Tait and other analysts said, however, that Penn West was not out of the woods and still needed to improve operational efficiency, shed assets and strengthen its balance sheet.

“The company’s base operations are unsustainable today,” said Barclays analyst Grant Hofer. This makes Penn West a unattractive as a takeover target and joint venture partner, he said.

Despite Penn West’s not so solid financial position, some investors do not rule out the possibility of a takeover.

“We never buy anything based on take-out value, but if you do look at some of the take-outs that have happened, it is not necessarily the companies in the best financial position that get taken out,” said Ryan Bushell, a portfolio manager for the IA Clarington Canadian Conservative Equity Fund at Leon Frazer.

“I could see someone finding some value in (Penn West). We certainly still think there is value in it,” said Bushell, whose firm owns roughly 1.94 million Penn West shares, according to Thomson Reuters data.